By Eden Mabunda
Finance minister Mthuli Ncube this August launched the Zimbabwe Mercantile Exchange (ZMX), an agricultural commodities trading platform with automated electronic warehousing and receipting capabilities, among other functions.
The ZMX is a culmination of a partnership between the government and the private sector, led by the Financial and Securities Exchange Limited (Finsec), TSL Limited and CBZ Holdings with the support of the World Bank.
The bourse is aimed at reducing price discovery and warehousing obstacles that local farmers are currently grappling with, while assisting farmers with the marketing of their agricultural produce, as well as tackle the challenges of pricey logistics and insufficient storage facilities. The facility also aims to curtail post-harvest losses, which currently stand at 30%. In the most basic terms, the ZMX is offering to connect buyers and sellers. To the farmer, the ZMX extends storage for harvested crops while providing a market for their crops at fairer prices. To the buyer, a broader pool of graded commodities is presented with ease of access, compounded with the merit of market-determined prices.
The trading platform also presents investors with a chance to diversify their investments along with a couple of other benefits. A notable feature of this market is the existence of options and futures. A commodity futures contract is an agreement to buy or sell a particular commodity at a future date with the price and the quantity of the commodity fixed at the time of the agreement. Given the volatility in Zimbabwe owing to currency instability and the off-shoot inflation in both the domestic and foreign currencies, the trade-in futures may prove to be tricky for traders.
The domestic trade of futures could be affected by currency shifts and a possible devaluation of the local unit which would result in a shift of the market toward a forex-orientated trade. As such, sellers would likely prefer future contracts denominated in foreign currencies than in the local unit which would likely drive foreign contracts more than local ones in the short to medium-term.
The new platform is wired to facilitate trade in at least 18 “soft” commodities, namely sugar beans, jugo beans (groundnuts), sorghum, cowpeas, mhunga (pearl millet), wheat, tea, sunflower seed, soya beans, rice, macadamia nuts, rice, rapoko, pecan nuts, oats, maize and two unnamed commodities. For now, only sugar beans, sorghum and mhunga are actively trading.
According to the ZMX website, maize will be added to the platform in March of 2022. Maize is a very sensitive crop as the livelihoods of millions depend on it, suggesting the government may be reluctant to relinquish control over the supply of the crop.
The ZMX succeeds the ZIMACE — Zimbabwe’s first private commodities exchange that was efficiently run before its closure in 2001. Its run was shortlived as the government felt its operations were interfering with the operations of the Grain Marketing Board (GMB), which by statute was the sole body that was supposed to deal in agricultural commodities.
Equity Axis analyst Rugare Mukanganga argues: “While the ZMX may look good on paper in these formative stages, the government’s heavy hand need not play on the market but allow market forces to determine the direction thereof … As the ZMX is run digitally, the ZMX will have to find a way of bridging the technology gap for farmers in Zimbabwe where there is a reported 55% smartphone penetration rate, high data costs, poor electricity supply, and limited internet connectivity, among other challenges.”
Approximately 7,1 million Zimbabweans are dependent on agriculture including 1,5 million smallholder farmers. Estimates indicate that the sector employs about 70% of the population, contributing 17% to national output or GDP.
The ZMX joins 14 other commodity exchanges on the continent with Nigeria operating three commodity markets while Kenya, Ghana and Malawi run two markets each. When Ethiopia set up its now-famous commodity exchange in 2008, few foresaw the ripple effect it would generate. But in five years, the Ethiopian Commodity Exchange (ECX) convinced stakeholders that bourses could improve food security in Africa.
- Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — firstname.lastname@example.org